Since first getting involved with blockchain a couple of years ago, i’ve ridden many waves of emotion, belief, and disbelief.
As one reads more, observes more and indeed as we learn more about this technology it’s easy to get caught up in over technological or philosophical discussions when in fact the reasons to believe in Bitcoin and glaringly obvious and are being validated more everyday that goes by.
With this article, I wanted to take a step back, and look at some more macro trends. For myself, I just wanted these big things in one place so that I could send one link to any new friends or family members who still did not know about or believe in cryptocurrency.
Disclosure: I’m pretty bias towards to the future of cryptocurrency as I left my old job about 15 months ago to focus on building Emanate. Realtime payments and collaboration platform for musicians.
Don’t take this piece of writing as a reason to spend money on cryptocurrencies.
But if you find it interesting, I do believe that it is worth educating yourself on what is happening in this space as it might become a part of your life sooner than you think.
Let’s take a chance to remember what money really is. An IOU that is exchanged for some goods, services or experiences. We used to trade these things directly in a barter system, but money became a way to trade anything we wanted, and to carry that value over to somebody else. Money has been backed by many things in the past including gold and silver, but these days it’s backed by debt. That’s a whole other rabbit hole to go down but for now, just remember this:
You value a $50 note because it is issued by a government, accepted almost everywhere and can be held by your bank. You trust that it is worth $50 because everyone agrees it is.
Unless it gets destroyed by the central body that controls it and there is massive inflation like in Venezuela (another rabbit hole).
But what if there was another way to hold and transfer value? What if it was generally accepted almost everywhere and everyone agreed it had a certain value? What if that currency was global, and not controlled by any government or central bank?
Would that currency be attractive in times of economic uncertainty?
So what will money look like in the future?
- It will almost certainly be digital, as most of our commerce is done online or exchanged electronically
- In today’s digital age, it should be globally accepted and stable between countries
- It needs to be very fast to transfer
- Currency crisis like the Venezuelan one above prove that maybe governments should not be in control of a countries money
So if the planet is to adopt some global electronic money, where would it come from? Who would manage it? Who would you trust? Should it be the Chinese government? The world bank? The US government? A corporation like Google or Facebook?
If you ask me, all the above are far too open to corruption and mismanagement to be trusted with all of the world’s money. The solution would be something more automated, not governed by any central body.
It’s sounding a lot like bitcoin.
The main issue with currency crisis like Venezuela, is hyperinflation — governments printing new money, with no backing, just to try and patch up holes in the economy. This de-values the entire supply and creates a snowball effect which leads to streets full off useless money.
Bitcoin is fixed in supply, and can never be increased. It is infinitely divisible so that means there is enough to go around. This means that the value of 1 BTC will only ever be the price that the next person is willing to pay for it… it is not affected by changing supply.
One of the reasons why bitcoin has increased and continues to increase in value so much is because of the HODL effect. A mentally held by the bitcoin community that it should never be sold, because by the time it would make sense to sell it… you won’t have to… because it will be worth so much and accepted everywhere in micro-transactions.
Many people believe that the price cannot continue to rise with the same velocity it has until now… but with more people holding it for the future, more people accepting it as payment and fixed supply… it will continue to rise in value until new people have stopped becoming interested in using it and storing wealth within it.
The massive spikes in value have occurred from bitcoin being used as a speculative investment vehicle. These have resulted in crashes, but the undeniable trend is a steady price increase over 10 years.
So, we’ve established that bitcoin may be a good alternative currency, as have millions of other people. That has resulted in an enourmous price increase from its humble beginnings in internet chat rooms, to something that is currently worth $8,600 USD; $153 billion USD overall.
But didn’t that bubble burst?
Yes, in 2018, the bubble did burst. It also burst in 2012, and in 2014. The real question is whether 2017 was the final bubble or whether there will be 1 or 2 or 3 more…
Looking at the linear price chart above looks a lot like a bubble bursting. The problem is that graph has increments of $80billion on its axis, but bitcoin has grown at an exponential rate. It was massively undervalued to begin with and whether it is now overvalued depends more its future than its past.
Traders like to use a logarithmic graph to explore price trends, the log chart has price increases that double along each increment. This chart below captures the detail within the BTC price history since 2011. Price history of an asset that is growing at an exponential rate.
With a new type of currency that is growing exponentially, that is infinitely divisible, that can be traded on hundreds of global markets. Many people believe that the price will continue to climb to $100,000 in the next 2 years, $300,000 over the next 4 years, and potentially 1 million USD per bitcoin in the longterm.
To get a bit more technical, you can read about the bitcoin halvening which historically coincided with rapid price increases because the number of new bitcoins being brought into circulation, reduces by 50%.
Whether this exponential increase continues over the next few depends entirely on how many more people want to use it, who accepts it as payment, which organisations choose to invest in it and how many people continue to hold it as a future wealth store.
Let’s explore a few reasons why I for one believe bitcoin will soar well over $100,000 USD per coin in the coming years.
A school of thought is emerging around the way that different generations choose to invest for the future.
The demographic peak of the Greatest Generation occurred around 1930, just after the start of the Great Depression. The Generation after this, the Silent Generation invested heaviliy in Gold which hit its peak in 1974. After that, Baby Boomers saw Gold as a less safe asset and started to favour equities; investment in companies that went along with the boom in consumer culture. This peaked in 1999 when the equities market reached its peak and the dotcom boom.
Along came Generation X who rode the wave of internet potential; investing in the likes of Amazon… enjoy great returns from the S&P 500.
Gen Y, the Millenials and Generation Z have seen the boom of the internet and how radically it changed culture and economies. Millennials grew up on the internet and Gen Z know nothing else. But these younger generations don’t trust corporations and governments like the generations before them did. They are far more independent and libertarian.
So the thinking goes that as millennials and Generation Z amass wealth both in their own lifetimes and via inheritances from the ultra-wealthy Baby Boomers… they will invest some, or a lot… in cryptocurrencies.
If bitcoin was to reach the heady highs of $100,000 it would need to carry a total market capitalisation of around 2 Trillion US Dollars. Considering the total crypto marketcap the last boom almost touched 1 Trillion USD, i’d say this is not just possible, but highly likely. For bitcoin to hit $1,000,000 USD, we would need a total marketcap of 20 Trillion USD in Bitcoin.
Let’s look at the total value of all other assets in order to determine if this is possible:
Total value of Gold: 7.5 trillion USD
Total value of ‘money’ broadly: 90 Trillion USD
Global Debt: 233 Trillion USD
Fund invested in derivatives: 500 Trillion USD
An important note is that we don’t need 19 Trillion to go into Bitcoin for it to be worth that much as a whole, the effect that the markets have on the total cap is a massive multiplier because an X% increase of the assets bought on the exchange, results in an X% increase to every single bitcoin holder in the world.
The amount of investment that needs to flow into bitcoin for it to reach a 2 trillion or 10 trillion marketcap is much, much less than it seems.
Funnily enough, if Bitcoin was worth $1 million USD, 1 satoshi (the smallest unit of bitcoin) would be worth about $1 USD.
Bitcoin has earned the badge of ‘digital gold’, due to it’s attractiveness as a store of value and the safe harbour it can provide in uncertain times. With talk of a bitcoin ETF on the horizon, even the patterns and explosive growth have been compared:
As mentioned above, the world’s gold is worth around 7.5 Trillion dollars. Bitcoin has properties that make it far more practical than gold.
Bitcoin prices over $100,000 rely on more cryptocurrency adoption. There are currently over 1 million active bitcoin addresses. What things could happen to cause a massive increase in the number of users? How about the biggest social media website in the world producing their own cryptocurrency? Could this mean up to 2 billion new crypto users?
Facebook Coin is not a threat to Bitcoin, it is an on-ramp, a gateway drug to a much deeper pool of cryptographic assets.
Once these new users grasp the idea of cryptocurrency, they will soon realise that facebook coin might be good for day to day transaction, but it’s no place to store any significant amount of wealth.
The latest news is that facebook will launch is currency in June 2019, and it will be a true crypto currency, validated by nodes around the world and overseen by a foundation independant to Facebook itself.
This is really one to watch.
Samsung announced a native crypto wallet in 2019. That’s another 40 million potential new crypto users. Apple introduced a credit card, and while it’s not yet being advertised as a bitcoin-friendly card, it does get consumers more used to the idea that it does not need to be bank at the center of their finances.
Apple has included a cryptokit in the lastest iOS framework already: https://cryptoslate.com/apple-cryptokit-ios-13-full-cryptocurrency-wallet-iphone/
When Samsung and Apple support crypto with touch payments, the behavior will change dramatically. For example; with Emanate, artists earn money for streams of their music in realtime… imagine if they could tap their phone to buy a coffee just as soon as that revenue flows in! These types of use cases are a revolution in payments and the role of a traditional bank is gone.
Most people in the developed world take it for granted that they can connect to the internet, open a bank account, deposit money and withdraw it when they want. But there are over 3 billion people not yet connected to the internet and over 1.7 billion without a bank account.
As SpaceX and others bring together global satellite internet coverage for the entire planet, a massive wave of innovation will be unleashed. But these people will not suddenly get bank accounts, more likely they will leapfrog banking altogether and go straight to bitcoin. This is already happening in small numbers but it will accelerate greatly.
All of these spell an incredibly bright and bullish future for bitcoin. Any one of the factors above supports increased adoption, investment and price rise. But in combination the case for bitcoin, in my opinion, is one that will continue to grow exponentially and I believe we are likely to experience another 2 or 3 parabolic growth periods.
Of course there are risks with cryptocurrency. Big ones.
Due to its humble beginnings, there are a small number of people (whales) with an enormous amount of bitcoin. Billions of dollars worth. These people can manipulate the price minute by minute if they desire and if they chose to, they could destroy the price by 99% very easily. It would most likely recover, but it would not be very fun.
Bitcoin in its current form slows down a LOT when it starts to be used heavily. At the end of 2017 in the last boom it took up to 2 days to send bitcoin to anyone. Several solutions exist, but this is still an issue and a good reason to watch other cryptocurrencies.
While regulation has been a burden in many countries (both the lack of it, or the reactive ad-hoc approach), it has not stopped the growth of bitcoin. That said, it’s possible your country could introduce new tax laws or your bank could prevent you from buying and selling in and out of bitcoin.
The extreme volatility in cryptocurrencies can make it very hard to hold through the pumps and dumps. Picking the top and bottom can be hard. HODLing can be even harder.
While proper management of your bitcoin is a fairly secure way of storing wealth, slight mismanagement can result in instant loss or theft. Lose your private key or leave it in the wrong hands and your money is gone.
Forks and other coins
Once you jump into bitcoin, there is a certain amount of ongoing education required to keep up with what is happening in the space. Another coin or token could pull massive market share form bitcoin. Bitcoin could fork into another chain and you could miss an opportunity to follow it.